Thursday, October 1, 2015

80% Of All New Home Buyers In Irvine Are Chinese

80% Of All New Home Buyers In Irvine Are Chinese

When RealtyTrac released its latest home sales report,
"which shows single family home and condo sales through August were on
pace for an eight-year high nationwide and in 110 out of 204" it was
something else that caught our eye. According to RealtyTrac president
Daren Blomquist, "the continued strength in sales volume across a wide
spectrum of markets in August indicates that shockwaves from recent
global stock market instability have not weakened the housing recovery
and in fact there is evidence that the instability has fueled more
demand for U.S. real estate."

Which was to be expected: as we have said for the past 4 years, one
of the three pillars supporting US housing, or at least the very high
end, is the money laundering of offshore hot money in the US, where
courtesy of the NAR's exemption from anti-money laundering provisions,
wealthy foreigners can park any amount of cash in US housing without any
questions asked. In August this was particularly acute because as
Blomquist adds, "cash sales share was more pronounced in markets that
have traditionally been magnets for foreign cash buyers, including
Boston, Las Vegas, San Francisco, Seattle and New York.”

And here was the stunner in question: "We are seeing more
globalization as Southern California has become a destination for
international buyers," said Mark Hughes, chief operating officer with
First Team Real Estate, covering the Southern California market. "Eighty percent of new construction in Irvine last year was sold to Chinese buyers. International buyers are driving home prices up and sometimes out of reach for many local residents."

You read that right, a whopping 80% of all new housing in Irvine was bought by Chinese.
Which prompted some follow up reading. This is what we found:

California is the most popular U.S. destination for Chinese real
estate buyers, according to Juwai.com, a Hong Kong-based property search
engine.

Chinese bought 32% of homes sold to foreign buyers in California, double the share sold to Canadians, according to an April 2014 survey by the California Association of Realtors. About 70 percent of international buyers pay cash, the survey showed.

Buyers from Greater China, including people from Hong Kong and
Taiwan, spent $22 billion on U.S. homes in the first quarter of 2014, up 72 percent from the same period in 2013 and
more than any other nationality, the National Association of Realtors
said yesterday in its annual report on foreign home purchases. That’s 24 cents of every dollar spent by international homebuyers, according to the survey of 3,547 real estate agents.

"A lot of people are trying to hedge against a generally bearish
outlook for the Chinese economy,” Hanemann said in a telephone
interview. “Buying real estate overseas has been in the past limited to a
relatively small group of wealthy individuals and sometimes government
officials. But it’s become a much bigger trend, involving affluent
middle-class people."

Affluent being the key word: Chinese buyers paid a median of $523,148 per transaction,
compared with a U.S. median price of $199,575 for existing-home sales.
While Canadians bought more houses than the Chinese, they spent less -- a
median of $212,500 per residence, for a total of $13.8 billion.

To be sure, the Chinese influx was felt particularly during 2014 when
the first reverberations of the burst Chinese housing bubble were felt,
and forced many to look to the US for parking capital for safety: "The
uncertainties in China’s domestic market are contributing to a higher
rate of growth in Chinese interest in U.S. property,” Andrew Taylor,
co-chief executive officer of Juwai.com, said in an e-mail. “That
interest began accelerating in the second quarter of 2014, in part
because of China’s property slowdown."

It remains to be seen if the recent modest uptick in Chinese housing
transactions, if not prices, will lead to a capital reallocation by
Chinese buyers out of California and back into China. But in the
meantime, Chinese buyers have made numerous domestic housing markets
inaccessible to average Amercians:

Buyers from China are driving up prices and fueling new construction
in Southern California areas such as Arcadia, a city of about 57,500
people with top-rated schools, a large Chinese immigrant community and
an array of Chinese restaurants and markets.
The median home price in Arcadia’s 91006 ZIP code was $1.28 million
in mid-2014, up 18.5 percent from a year earlier, according to research
firm DataQuick.

“About 90 percent of my buyers are from China,”
said Peggy Fong Chen, a broker with Re/Max Holdings Inc., who sold 80
homes in Arcadia last year. “They want new construction. They want two
levels. In China, it is considered a mansion if it has two levels.”

More than three out of four buyers pay cash, said
Chen, a native of Hong Kong who’s been selling real estate for 10 years.
At least 20 percent are absentee owners who don’t have long-term visas
yet. Many purchase houses for their children to attend high school or
college, she said.

Buyers from China and Asian-Americans purchased about 80
percent of the 47 houses sold at Tri Pointe Homes Inc.’s Arcadia at
Stonegate community in Irvine, about 40 miles southeast of Los Angeles, according to Tom Mitchell, president of the Irvine-based builder.

Almost half of the buyers paid cash for houses in the development,
at prices starting at $1.16 million, he said. The company has been
surprised by how word travels among overseas buyers. “A Chinese national
bought one of our houses at Arcadia in Irvine after reading about it on
a blog,” Tri Pointe CEO Doug Bauer said in a telephone interview. “It
was a Chinese blog. We couldn’t even read it.”

Which brings us to the key issue: uncontrolled Chinese money
laundering which is the primary reason for this capital exodus, and
billions in Chinese "hot money" bidding up luxury US real estate into
the stratosphere. We have discussed it extensively before, and here is bloomberg:

Some wealthy Chinese have come up with ways to
evade the yearly $50,000 per-person limit on taking money out of the
country so they can buy U.S. real estate, Yu said. Methods include
laundering money through Macau casinos and cooking the books of
import-export companies, he said.

“A lot of people over-invoice export proceeds, so they can park some money outside,” Ha
Jiming, chief investment strategist for Goldman Sachs Group Inc.’s
China investment management division, said at a Los Angeles conference
in April.

Putting a bottom line on the capital outflows, according to the NAR,
sales of U.S. houses to long-term foreign residents and non-resident
buyers accounted for about 7 percent of the $1.2 trillion of
existing-home transactions in just the first quarter of 2014.

So realistically, call it 10%, which means that mostly all cash
foreign buyers are responsible for about $500 billion in US real estate
all cash investment every year, of which anywhere between a third and a
half is Chinese.

And there is your massive Chinese capital outflows in a nutshell,
which incidentally is also the biggest threat facing China's economy now
that it has begun devaluing its currency and yet is desperate to avoid
the capital flight from its economy.

Which makes us wonder: if asked what presidents Xi and Obama really discussed
in private last week, a safe bet is it wasn't computer hacking, nor
artificial islands in the South China Sea, but how the US plans to curb
the outflow of hot Chinese money into US real estate.

Which is a problem for the US, because thanks to Chinese capital flows, it means half a trillion dollars in capital flow right into the US economy via real estate every year. Call
it 3% of GDP, roughly what the US growth rate should be. Xi is angry
that this capital is leaving his economy; Obama is delighted.

How will this very critical issue be resolved remains to be seen but
as we will note in a follow up post, China is already taking very
aggressive steps to finally limit and halt altogether the epic money
laundering that is sucking China's economy dry and is leading to such
dramatic outcomes as 80% of all buyers in a major US metro-area being
Chinese.